Payment by Results: time for a rethink?

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It’s now a decade since Delivering the NHS Plan made a specific commitment to a new way of paying hospitals that would align payment for work done – delivering on the promise that ‘money will follow the patient’. A year later the new fixed price system – Payment by Results (PbR) – began to roll out, covering just 15 surgical procedures and accounting for a few million pounds’ worth of activity.

This year PbR will cover around 1,300 separate types of activity; account for between 40 per cent to 50 per cent of the total incomes for many hospitals; and amount in total to around £29 billion, about a quarter of the entire NHS budget in England.

In many ways PbR has been a tremendous success. The scale of its implementation has been impressive, rivalling most other countries’ attempts to implement similar systems. The technical issues that had to be addressed – from defining the ‘product’ to designing the fixed tariff without causing instability across the NHS – were substantial. 

A national evaluation of PbR also showed that it had succeeded in boosting activity, reducing lengths of stay, and encouraging more day cases over inpatient work.  At a minimum it appears not to have reduced quality of care.

And yet – the more we have got to know about how PbR and similar payment methods in other countries operate in practice – coupled with big changes in the economic, financial and policy context that have occurred since PbR was originally designed – the more there seems to be a case for a rethink.

A key goal for PbR, in those days when the NHS was receiving one of the biggest funding boosts in its history, was to encourage hospitals to do more work in order to reduce waiting times. But now, and for the foreseeable future, the goals – and the financial environment – have changed. A payment system that rewards doing more for more is less and less appropriate.

There are some general lessons we have learned too.

First, payment systems cannot do everything: they are one of many levers that can be used to achieve change. Second, one size does not fit all. Different services will need different ways of paying providers in order to meet different sets of objectives. Related to this is a third point that any payment system needs to be flexible – to deal with unexpected shocks, or unpredicted outcomes. There needs to be flexibility too between national rules and frameworks and local discretion and experimentation. Importantly, different types of care and different patients – from a knee replacement operation for the otherwise healthy 50 year old to ongoing episodic care for a 75 year old with multiple long-term needs – will require different payment approaches to give the right incentives to providers to deliver high quality cost-effective care.

Finally, we must find out more about how different payment systems operate in practice in different situations. Further developments in payment approaches will need to be supported by high-quality data and analysis or they will lack compliance and risk leading to unintended and unwanted side effects.

The NHS Commissioning Board and Monitor will soon be taking on the design and pricing functions of PbR. So how should they approach this job?

Things could carry on more or less as they have been over the past few years, with incremental development of PbR alongside approaches better suited to current needs – such as bundling or ‘year of care’ payments. Or, Monitor and the NHS Commissioning Board could develop a wider range of payment systems centrally and mandate them to the NHS.

However, in our view, they should allow and encourage local experimentation, but within a national framework. Commissioners and providers would be required to seek approval for, and commit to evaluating, the impact of local variations. The NHS Commissioning Board and Monitor would provide technical support and track the innovations adopted.

This active encouragement of local experimentation is more likely to identify the blend of payment systems needed to support the rapid development of new models of care.

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Dr Phil Yates

Chairman GP Care & General Practitioner,
GP Care UK Ltd
Comment date
14 November 2012
PbR has had a number of very damaging unintended consequences:
1. It has led to more NHS monies being sucked into acute Trusts (not aided by the fact that upcoding by Trust staff has falsely inflated their activity levels) than would be best for maximum NHS efficiency (hospital care is expensive care and overall efficiency would be improved by the properly funded development of 'upstream' community alternatives)
2. It has driven a rift between community based and hospital based systems (clinicians and managers) - commissioning groups (PBC, PCTs and CCGs) are simply focused on how to avoid hospitals' activity leading to a breach of the local financial envelope. Acute Trusts have only paid lipservice to primary / secondary clinical discussions and integrated pathways as thesewould be likely to be damaging to their income streams
3. It has entrenched 'traditional' types of patient contact - hospital outpatient or inpatient activity - rather than supported innovation and different types of provision (email, twitter and non-direct contact; or local care delivery options.

Rosemary Croft

South Reading Consortium
Comment date
13 November 2012
So why are we looking at PbR for Mental Health where we want quality - not quantity, and the block contract has considerable advantage at harnessing the expertese of the specialists to get the most efficient fit?

richard Day

Comment date
06 November 2012
Any payment system based on any form of activity requires some form of counting or measurement. The virtue of PbR as it is, is that it is so easy to count. Any payment system based on quality, patient-rated outcome, or phone/email contacts is either expensive or impossible to measure accurately. The easiest systems are reward-based (eg private practice, QOF, or US care) or block allocations (eg the rest of the NHS). Should we be extending the block?

Bernd Sass

Strategic Partnership Manager,
Disability Rights UK
Comment date
05 November 2012
Yes, it is about outcomes that need to be validated by patients making choices for which they need to be empowered and supported. We need to come to further-reaching payment models that are both based on and geared towards lived experience - to the benefit of individual patients, commissioners and whole local communities. Proportionate, bundled tariffs with peer support as a defined element are most certainly part of the solution.

If you look back at how Direct Payments had been set up initially, there may be some positive ways forward.

Andy Williamson

Kidney transplant patient,
Comment date
04 November 2012
This form of payment by activity actively discourages clinicians from engaging with patients via email, phone and other non 'episodes'. Other non-traditional interactions might include dealing with groups of patients, in person or using online forums. These can be of great benefit to patients, but don't seem possible under current 'tariffs'.

Lucianne Sawyer

independent social care consultant,
Community Care Research & Consultancy
Comment date
03 November 2012
Good comment Claire - I totally agree with you, all too often we are seeing confusion in this whole area.

I would go a step further though, which is that using the word 'quality' in this context is potentially misleading, partly because of lack of common concensus about what 'quality' means but also because it switches attention onto the action, rather than the onto the difference that action makes for the individual. Surely what is really needed in any PbR system is to make sure that payment is related to RESULTS, i.e. the benefit to the patient/client from the treatment (operation, service etc) ?

Claire Dellar

Benefits Realisation Manager,
Norfolk & Suffolk NHS FT
Comment date
02 November 2012
PbR is a complete misnomer. It is payment by activity. Until we commission for outcomes and the money follows the quality not the activity we will continue to have a system where patients are not at the centre of the system.

Roger Steer

Healthcare Audit Consultants ltd
Comment date
02 November 2012
As far as I know there is nothing to stop commissioners developing payments systems for new pathways of care.
Apart from initiative and capability.
But there is also the little matter of conflicts of interest. If you can design a service, price a service and commission yourself to provide a service which in turn is of a difficult to define and measure nature don't be surprised if it all goes pear shaped.
I hope the Kings Fund have conducted a risk analysis.

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